Delhi District Court
M/S. Lakhanpal Ltd vs M/S United Spirits Ltd on 31 October, 2018
IN THE COURT OF SH. M.P. SINGH, ADDITIONAL DISTRICT
JUDGE03 (CENTRAL), TIS HAZARI COURTS, DELHI
CS No. 92/17
New CS No. 1938/17
M/s. Lakhanpal Ltd.
Registered office at - Ashyana,
15th Road, Khar,
Mumbai 4000052 ......Plaintiff
Versus
1. M/s United Spirits Ltd.
(through its Managing Director)
UBI Tower Lever 6
24, Vittal Mallya Road UB
Banglore 560001, Karnataka
2. Sh. Shivraj Gupta (deleted from array of parties on 11.10.2010)
r/o 23, Ishwar Nagar, Delhi
3. Sh. Jayant Gupta (deleted from array of parties on 11.10.2010)
r/o 23, Ishwar Nagar, Delhi .....Defendants
SUIT FOR DECLARATION, RESTITUTION OF PROPERTY,
MANDATORY INJUNCTIONS AND DAMAGES
Suit filed on : 08.07.1991
Judgment pronounced on : 31.10.2018
JUDGMENT
1. On 24.05.1996 the following issues came to be framed:
1. Whether the plaintiff is the owner of the shares? OPP
2. Whether the defendants have not willfully and deliberately withheld the shares of the plaintiff? OPD
3. Whether the defendants Nos. 1 to 3 have not committed a CS No. 92/17 New CS No.1938/17 M/s. Lakhanpal Ltd. V. M/s United Spirits Ltd. Page 1 of 16 pages breach of trust by returning the shares to the persons other than the plaintiff? OPP
4. Whether the plaintiff is entitled to the return and restitution of all the shares alongwith the accretions thereto? OPP
5. Whether the suit is bad for nonjoinder of the parties?
OPD
6. What amount is the plaintiff entitled to? OPP
7. To what rate of interest is the plaintiff entitled to? OPP
8. Relief.
2. On 25.05.2010 following two additional issues were framed:
1. Addl. Issue no.1 Whether the suit of the plaintiff is time barred? OPP
2. Addl. Issue no.2 Whether suit of the plaintiff is barred by estoppel, waiver and acquiescence? OPP
3. Vide Order dt. 28.10.2010, additional issue no.1 qua limitation was taken up as a preliminary issue. On 30.03.2017 Ld. Predecessor of this Court held that the 'issue of limitation will be deciding (sic.
decided) only after taking the evidence.' Order dt. 30.03.2017 came to be challenged before Hon'ble Delhi High Court and vide order dt. 13.07.2017 this Court was directed to hear the counsels and then adjudicate on the preliminary issue.
4. Relevant facts, as set out in the plaint, may now be taken note of:
I) Family of late Hansraj Gupta controlled about 80% shares of M/s Central Distillery & Breweries Ltd. and the rest were with the outsiders. Shivraj Gupta, one of the sons of late Hansraj Gupta, through fraudulent acts, managed to acquire control of M/s Central Distillery & Breweries Ltd.CS No. 92/17
New CS No.1938/17 M/s. Lakhanpal Ltd. V. M/s United Spirits Ltd. Page 2 of 16 pages II) Over the years, plaintiff managed to buy shares held by outsiders. Plaintiff over a period of time bought 3,554 shares.
These transfers were made in plaintiff's favour on transfer deeds. Between May 1986 and August 1986 plaintiff lodged/delivered these shares with M/s Central Distillery & Breweries Ltd. for carrying out the requisite ministerial act of amending its register of members so as to reflect the change in ownership in the said shares. The said shares numbering 3,554 were lodged with M/s Central Distillery & Breweries Ltd. in batches.
III) M/s Central Distillery & Breweries Ltd. for one reason or other refused to register the transfer of shares owned by plaintiff in the register of members. It was for the first time vide its letter dt. 31.07.1986 that M/s Central Distillery & Breweries Ltd. informed the plaintiff its decision not to register the transfer of shares in his name. In this letter, there was a reference to a letter dt. 02.07.1986 which plaintiff never received. Plaintiff then sent its authorised representative to demand return / restitution of the shares lodged by him for registration with M/s Central Distillery & Breweries Ltd., but its demands were rejected.
IV) Plaintiff avers that M/s Central Distillery & Breweries Ltd.
held the property comprised in the said shares in its capacity as its (plaintiff's) bailee/trustee. If M/s Central Distillery & Breweries Ltd. were to refuse, it is averred, to register the transfer of shares in plaintiff's name, then it was bound by a statutory duty and contractual obligation of bailee/trustee of the said shares and return the same to plaintiff. Plaintiff CS No. 92/17 New CS No.1938/17 M/s. Lakhanpal Ltd. V. M/s United Spirits Ltd. Page 3 of 16 pages company avers that formality of registration or non registration of these shares numbering 3,554 did not in any way alter its ownership over them as the same already stood vested in it. Plaintiff invokes Article 32 of Articles of Association of M/s Central Distillery & Breweries Ltd. to press home its point that the shares ought to have been returned to it. This Article 32 reads as follows, "All instruments of transfer which shall be registered shall be retained by the company, but may be destroyed upon the expiration of such period as the Board may from time to time determine. Any instrument of transfer which the Board declines to register shall (except in any case of fraud) be returned to the person depositing the same."
V) Against the refusal of M/s Central Distillery & Breweries Ltd.
to register the transfer of shares in its name, plaintiff preferred an appeal before Company Law Board (for short 'CLB') under section 111, Companies Act. Similarly, M/s Central Distillery & Breweries Ltd. too made a reference to CLB under section 22A, Securities Contract and Regulation Act to seek conformation of its decision in refusing to register transfer of shares in plaintiff's names. CLB vide a common order dt. 25.03.1988 upheld refusal of registration on the technical ground of noncancellation of stamps on the instruments of transfer as required under section 12, Indian Stamp Act. CLB was of the view that this amounted to insufficient compliance of section 108, Companies Act. CLB vide its order dt. 25.03.1988, however, gave liberty to plaintiff to affix proper stamps on the transfer deed and get the same CS No. 92/17 New CS No.1938/17 M/s. Lakhanpal Ltd. V. M/s United Spirits Ltd. Page 4 of 16 pages adjudicated by an appropriate authority so as to enable it to lodge proper instrument of transfer as required by law.
VI) Relying on the CLB order dt. 25.03.1988 plaintiff again approached M/s Central Distillery & Breweries Ltd. for return of its shares and instruments of transfer lodged by it to enable it to rectify the deficiency in stamping. Despite several reminders M/s Central Distillery & Breweries Ltd. refused and/or ignored plaintiff's requests.
VII) Plaintiff for the first time 'after 03.06.1988' became aware and was intimated that Sh. Shivraj Gupta and Sh. Jayant Gupta had fraudulently returned the said shares numbering 3,554, that were in their absolute possession and control, with the transfer forms to the original transferors.
VIII) Plaintiff company avers that M/s Central Distillery & Breweries Ltd. was bound to transfer the dividend into a special account on its (plaintiff's) behalf; and that the company was also bound to keep in abeyance any offer of rights shares and any issue of fully paid up bonus shares in relation to 3,554 shares owned by it; and that the company was bound under law to transfer the dividend on such shares to a special account in view of section 206A, Companies Act, 1956.
IX) Plaintiff, out of the original 3,554 shares lodged with M/s Central Distillery & Breweries Ltd., managed to get back 550 shares from the original transferors. Thus, defendant company unlawfully continues to retain 3,004 shares of the plaintiff.
X) M/s Central Distillery & Breweries Ltd. later amalgamated with M/s Maharashtra Distillery Ltd. and which later merged CS No. 92/17 New CS No.1938/17 M/s. Lakhanpal Ltd. V. M/s United Spirits Ltd. Page 5 of 16 pages with M/s United Spirits Ltd. (the present defendant).
arose on XI) Plaintiff states that cause of action first 31.07.1986 when shares were refused to be registered; that cause of action again arose again when CLB passed an order on 25.03.1988 upholding refusal to register the shares; that cause of action arose on 03.06.1988 when M/s Central Distillery & Breweries Ltd. intimated the plaintiff that it had returned the shares to the original transferors; that cause of action further arose when defendant did not intimate transfer of dividend relating to 3,554 shares into a special account under section 205A, Companies Act nor intimated keeping in abeyance of the offer of right shares and issue of fully paid up bonus shares as required both under the law and under provisions of Companies Act, 1956; that this obligation is a continuing obligation as transfer of shares continue to be on the register of the company and the obligation being of continuing nature, a fresh cause of action accrues day to day in his favour.
5. On these averments, plaintiff seeks the following reliefs:
(a) Declare that defendants violated plaintiff's ownership in the shares at Annexure A, inter alia, by denying physical control therein and further in the Rights Shares, Bonus Shares and dividends arising thereon on account of nonreturn of such property and violation of obligation to keep in abeyance the entitlements flowing therefrom;
(b) Declare that defendants no. 1 to 3 Central Distillery & Breweries Ltd. committed a breach of trust and violated section 22A, Securities Contract Regulation Act, 1956 read with the listing Agreement maintained with Delhi Stock Exchange Ltd. in not returning the shares refused to be transferred by the company to plaintiff;CS No. 92/17
New CS No.1938/17 M/s. Lakhanpal Ltd. V. M/s United Spirits Ltd. Page 6 of 16 pages
(c) Declare that defendants no. 1 to 3 committed a breach of duty/ obligation of a bailee of the shares, lodged as per Annexure A for registration with the company, with malafide intention and contrary to provisions of Companies Act, 1956 so as to defraud the plaintiff of the dividend, Rights Shares and Bonus Shares arising and accruing thereon;
(d) Declare that plaintiff is entitled to return and restitution of all the shares listed in Annexure A with the accretions thereto, the dividends and all other benefits attaching to these shares, or duplicate shares and Rights Offers and bonus securities and dividend warrants in lieu thereof.
(e) Decree that defendants no. 1 to 3 are liable to pay a sum of Rs. 5,00,000/ as damages for losses occasioned to plaintiff on account of loss of special property in the shares and stamp duty thereon traded in low volumes and are not freely available in the market and on account of the loss of rights and control after plaintiff's property occasioned by nonreturn of share certificates;
(f) Decree the cancellation of the original share certificates as per Annexure A and the bonus shares, Rights Shares/entitlements and dividend warrants attached thereto not physically handed over to the plaintiff and further decree the issue of duplicate share certificates as per Annexure A along with any rights shares or entitlements or bonus shares or dividend warrants and their delivery to the plaintiff together with the full costs of obtaining the executed share transfer forms and stamp duty for transfer thereof;
(g) Decree that the 1st defendant is liable to register the original or duplicate shares as per Annexure A Rights shares and entitlement and bonus shares attached thereto in the plaintiff's name upon the issue and delivery thereof to the plaintiff and the defendant no. 1 be itself constituted the transfer agent for these shares in view of the malafide and deliberate loss of the share transfer forms by the defendant no. 1 and non return of the same to the plaintiff;
(h) Pass a mandatory injunction and direction to defendant no. 1 to credit the dividend earned and / or to be earned in respect of the shares listed in the CS No. 92/17 New CS No.1938/17 M/s. Lakhanpal Ltd. V. M/s United Spirits Ltd. Page 7 of 16 pages Annexure A and / or accretions thereto in a Special Account on behalf of the plaintiffs, earning interest @ 15% p.a. or such higher rate, as is applicable to commercial over - draft loans and further direct that the same be handed over to the plaintiff;
(i) Issue a mandatory order and direction directing the 1 st defendant to keep in abeyance plaintiff's bonus shares/rights shares as were as are the entitlement of the plaintiff's till the nonregistration of the plaintiff's shares in abeyance in view of the breach of their bailees' obligation of returning the property lodged with them for transfer and not transferred;
(j) Issue an order of injunction restraining defendants no.
1 to 3 from recording any vote on the said shares at Annexure A or any accretions thereon contrary to the wish and desire of the plaintiff at any General Body/Annual General Meeting of the Company and that any notices of such meetings issued by the 1 st defendant company along with their proxy forms be directed to be forwarded to the plaintiff for enabling lodgment of such proxies with the 1 st defendant company in time;
(k) Direct the 1st defendant company to issue all notices, copies of the balance sheets and other statutory records, as are the entitlement of a shareholder to be handed over from time to time, to plaintiff till disposal of the suit and record of the plaintiff upon rectification of the share transfer forms/resubmission of the share transfer forms.
(l) For costs; and
(m) For such further and other relief/s as the nature and
circumstances of the case may require.
6. Since the preliminary issue is to be decided essentially on the pleas founded in the plaint, averments in the written statement are not being taken note of.
7. The findings on the preliminary issue (Additional Issue no. 1) are as follows:
CS No. 92/17New CS No.1938/17 M/s. Lakhanpal Ltd. V. M/s United Spirits Ltd. Page 8 of 16 pages
8. Insofar as the relief of declaration is concerned, in terms of Article 58, Limitation Act, 1963 the period of limitation is 3 years and the time from which this period begins to run is when the right to sue 'first' accrues. In the plaint, plaintiff itself avers that cause of action had 'first' accrued on 31.07.1986 when the company refused to register the shares. Therefore, when on 31.07.1986 company refused to register the shares in plaintiff's name, the time had begun to run for the reliefs of declarations. This was the 'first' accrual of right to sue. This act of the company was a final act and it was not a recurring act. In Khatri Hotels (P) Ltd. vs. Union of India, (2011) 9 SCC 126 the following passage occurs, "30. While enacting Article 58 of the 1963 Act, the legislature has designedly made a departure from the language of Article 120 of the 1908 Act. The word 'first' has been used between the words 'sue' and 'accrued'. This would mean that if a suit is based on multiple causes of action, the period of limitation will begin to run from the date when the right to sue first accrues. To put it differently, successive violations of the right will not give rise to fresh cause of action and the suit will be liable to be dismissed if it is beyond the period of limitation counted from the day when the right to sue first accrued." This ratio decidendi was followed in L.C. Hanumanthappa vs. H.B. Shivkumar, (2016)1 SCC 332. Even if the period of limitation were to be counted from the day when plaintiff sent its authorised representative to demand return / restitution of the shares and which demands were rejected, yet the suit would be time barred. Even if this Court were to take the most charitable view and count the period of limitation from 25.03.1988 (on 25.03.1988 CLB passed the order holding that for want of stamp duty, shares can not be CS No. 92/17 New CS No.1938/17 M/s. Lakhanpal Ltd. V. M/s United Spirits Ltd. Page 9 of 16 pages registered in plaintiff's name), yet the suit is hopelessly time barred. Given the extant law that limitation under Article 58, Limitation Act begins to run when the right to sue 'first' accrues, the argument that cause of action is a continuing one on the anvil of section 22, Limitation Act has to be turned down. Further, there are decisions to hold that section 22, Limitation Act applies to continuing wrongs and not to a continuing right and so a pure declaratory suit under section 34, Specific Relief Act can be brought when plaintiff's right to any property is first denied and to such a suit section 22, Limitation Act will have no application {see Krishnan vs. Annaji, AIR 1930 Bom 61}.
9. Ld. Counsel for plaintiff invited attention of this court to paragraph 14 of the plaint wherein it is stated 'plaintiff for the first time 'after 03.06.1988' became aware and was intimated that Sh. Shivraj Gupta and Sh. Jayant Gupta had fraudulently returned the said shares numbering 3,554 with the transfer forms to the original transferors that were in their absolute possession and control.' He thus argued that limitation would begin to run 'after 03.06.1988'. Thus argument is a meritless one for multiple reasons. Firstly, it bears repetition to state that limitation under Article 58, Limitation Act begins to run when the right to sue 'first' accrues. Right to sue 'first' accrued to plaintiff on 31.07.1986, or at any rate when plaintiff's authorised representative was refused to be given the shares, and in any event on 25.03.1988. Plaintiff itself in its plaint, in the paragraph qua the different dates when the cause of action accrued, has averred that cause of action 'first' arose on 31.07.1986 when the company refused to register the shares and it further CS No. 92/17 New CS No.1938/17 M/s. Lakhanpal Ltd. V. M/s United Spirits Ltd. Page 10 of 16 pages arose on 25.03.1988 when CLB upheld the decision not register the shares in its name. Secondly, in the very same paragraph concerning the different dates when the cause of action arose plaintiff makes an averment, "The cause of action arose on 3.6.1988 when the Defendant No.1 Company intimated that it had returned the shares to the original transferors." Therefore, there is a positive averment in the plaint that it was on 03.06.1988 that plaintiff had knowledge that defendant company had transferred the shares to original transferors and the cause of action arose on 03.06.1988. And this averment is against an entirely vague averment in paragraph 14 of the plaint that plaintiff for the first time 'after 03.06.1988' became aware of this. The question to be asked is what does the plaintiff mean by 'after 03.06.1988' and this is more so when plaintiff itself states, "The cause of action arose on 3.6.1988 when the Defendant No.1 Company intimated that it had returned the shares to the original transferors." Thirdly, 'after 03.06.1988' is as vague as it can be. 'After 03.06.1988' may as well mean 04.06.1988 or 03.06.2018 or 03.06.2019 or even eternity. Fourthly, plaintiff cannot be allowed to make an extremely vague averment and then go about taking undue advantage of the same. To do so would essentially mean that 'after 03.06.1988' is such a date which in plaintiff's scheme of things has not arrived as yet. And thus, extending this logic, such a date when the cause of action accrues 'after 03.06.1988' may not have even dawned as yet. Fifthly, this argument is not tenable from another perspective. Supposing the company had not returned the shares to the original transferors and instead retained the same with itself, would the plaintiff, in such an event, take the position that the cause of action for it never accrued and that it has CS No. 92/17 New CS No.1938/17 M/s. Lakhanpal Ltd. V. M/s United Spirits Ltd. Page 11 of 16 pages no grievance against the defendant company and further that it had no reason to sue the defendant company notwithstanding the fact that it had refused to register the shares in its name and also to return the same to it? Certainly not. Refusal to register the shares and to return the shares to plaintiff was ipso facto sufficient to set in motion the cause of action as also the period of limitation. This can be viewed from another angle. Say, if the company were to decide in year 2050 that the shares must now be returned to original transferors. In such an event, would limitation be kept in abeyance or in suspended animation till year 2050 so far as the allegedly illegal acts of refusal to register the shares and to return the same were concerned and the plaintiff would not file the suit till year 2050? Certainly not. Sixthly, for the plaintiff its pleas to register the shares and/or to return the same to it was actually not contingent on whether the company on a subsequent date decided to transfer the same to original transferors. As to whether the company on the subsequent date treated the same a waste paper or transferred the same to original transferors was actually no cause of action in plaintiff's scheme of things as the cause of action had already occurred when company refused to register the shares and / or when it refused to return the same to plaintiff. Therefore, for these multiple reasons the plea that limitation commenced 'on 03.06.1988' and / or 'after 03.06.1988' when the company returned the shares to the original transferors is actually not correct and is actually a ruse. That apart, even if this Court were to take the date as 03.06.1989 when the limitation commenced, yet the suit would be time barred as the suit in this case was instituted on 08.07.1991.
10. Plaintiff next claims damages of Rs. 5 lacs on account of loss of CS No. 92/17 New CS No.1938/17 M/s. Lakhanpal Ltd. V. M/s United Spirits Ltd. Page 12 of 16 pages special property comprised in the shares. This relief too is hopelessly time barred. In terms of Article 91 of Limitation Act the limitation would be three years. Plaintiff right from the very inception was aware of the fact that defendant company was allegedly wrongfully detaining its shares and it had in fact refused to return / restitute the same to it contrary to the mandate of Article 32 of Articles of Association. Right from the very inception, plaintiff was also aware of identity of defendant company that had allegedly wrongfully retained its shares. Plaintiff was aware of all these facts on 31.07.1986, or at any rate when its authorised representative was refused to be given the shares, or in any event on 25.03.1988. Given this, relief of damages of Rs. 5 lacs on account of loss of special property (suit filed on 08.07.1991) is hopelessly time barred. To such a relief, section 22, Limitation Act would not apply {see the decision of Sankar Dastidar vs. Banjula Dastidar, AIR 2007 SC 514}. On similar footing the relief of return / restitution of the shares allegedly wrongfully withheld too would be time barred {see Articles 68 and 69, Limitation Act} and to the same, on the anvil of Sankar Dastidar (supra), section 22 of Limitation Act would not apply.
11. Plaintiff next claims a decree of cancellation of original share certificates etc. Article 59, Limitation would govern this and the limitation for this is three years. Under this Article, limitation would begin to run from the date when the facts entitling the plaintiff to have the instrument cancelled first became known to it. In the case at hand, all such facts were within plaintiff's knowledge on 31.07.1986, or at any rate when its authorised representative was refused to be given the shares, or in any event on 25.03.1988. Given CS No. 92/17 New CS No.1938/17 M/s. Lakhanpal Ltd. V. M/s United Spirits Ltd. Page 13 of 16 pages this, this relief (suit filed on 08.07.1991) too is hopelessly time barred. This relief of cancellation cannot be treated to be a recurring cause of action by any stretch of imagination for the purposes of section 22, Limitation Act.
12. Plaintiff next claims several mandatory injunctions. These reliefs are again time barred. Plaintiff had knowledge of alleged wrongful retention of the shares on 31.07.1986, or at any rate when its authorised representative was refused to be given the shares, or in any event on 25.03.1988. To sue for mandatory injunctions on 08.07.1991 on facts that were in plaintiff's knowledge more than 3 years ago would not be tenable and would be time barred.
13. Ld. Counsel for plaintiff argued that limitation was a mixed question of facts and law. There can certainly be no quarrel with this argument. In this case too it is mixed question of facts and law. The facts for deciding this issue of limitation have been culled out from the plaint and the law under the Limitation Act has been applied. That apart, in the case at hand, the several dates for deciding this issue of limitation are itself set out in the plaint and the plaintiff cannot possibly make an about turn from it. It cannot possibly lead any evidence contrary to what it has averred in its plaint. It cannot supply any other date to the facts as set out in the plaint. In the case at hand, even the plaintiff would not dispute the dates that it has written in its plaint. Therefore, it is difficult to comprehend as to when there is absolutely no dispute as to the dates when defendant company refused to register and to return the shares, why should the court proceed to defer the decision on the aspect of limitation and instead proceed to take evidence. In this CS No. 92/17 New CS No.1938/17 M/s. Lakhanpal Ltd. V. M/s United Spirits Ltd. Page 14 of 16 pages context, reliance placed upon the decision of Ramesh B. Desai vs. Bipin Vadilal Mehta & Anr., (2006) 5 SCC 638 by plaintiff's counsel is misplaced. This is for the reason that a reading of this judgment would show that facts as to when limitation had commenced in Ramesh B. Desai (supra) were itself in dispute.
That apart, in the case at hand, this preliminary issue is being decided against plaintiff on the plea of demurrer; that is on the assumption that averments in the plaint are correct. Thirdly, in paragraph 19 of Ramesh B. Desai (supra) there is an observation, "Therefore, unless it becomes apparent from the reading of the company petition that the same is barred by limitation the petition cannot be rejected under Order 7 Rule 11 (d) CPC." Therefore to say that in all matters, come what may, the issue of limitation must be decided after taking evidence would not be correct. Where from the very averments in the plaint a suit is ex facie time barred, I do not think that a court would still insist on a trial in order to decide the issue of limitation.
14. To sum up, this preliminary issue is answered against the plaintiff and in favour of the defendant. The suit is patently time barred.
15. Inasmuch as the preliminary issue of limitation has been decided against the plaintiff, there is no need to decide the other issues. It is pertinent to mention that before CLB there was never any prayer for return of the shares. It is also pertinent to mention that even if arguendo plaintiff were to seek the benefit of section 14, Limitation Act to cover the period of CLB proceedings, yet the suit would be time barred. As already stated, the CLB proceedings had CS No. 92/17 New CS No.1938/17 M/s. Lakhanpal Ltd. V. M/s United Spirits Ltd. Page 15 of 16 pages come to an end on 25.03.1988.
16. Preliminary issue (Additional Issue no.1) qua limitation is answered against the plaintiff and in defendant's favour. The suit is patently time barred. The suit stands dismissed. No order as to costs. Decree sheet be drawn up. File be consigned to record room.
ANNOUNCED IN THE OPEN MURARI Digitally signed by MURARI PRASAD SINGH COURT ON 31.10.2018 PRASAD Date: SINGH 2018.10.31 16:18:29 +0530 (M. P. SINGH) ADJ03 (CENTRAL) TIS HAZARI COURTS: DELHI/31.10.2018 CS No. 92/17 New CS No.1938/17 M/s. Lakhanpal Ltd. V. M/s United Spirits Ltd. Page 16 of 16 pages